world growth

world growth

Wednesday, October 8, 2008

China Exports to U.S. `Small Beer' for Economy

By Lee J. Miller

Oct. 7 (Bloomberg) -- A U.S. recession won't ``drag China down with it,'' because only 7 percent of China's economic output is generated by exports to America, with half of those being consumer goods, according to TD Securities Ltd.

``History shows very little in the way of a correlation between U.S. consumer spending and Chinese gross domestic product,'' said Stephen Koukoulas, head of global foreign exchange and fixed-income strategy at TD Securities in London.

``The start of the U.S. consumer boom in about 1995 coincided with a major slowing in Chinese gross domestic product,'' he said by telephone. During the U.S.'s recession in 2001, GDP in China ``took off'' even while America's personal consumption growth slowed to 2 percent from about 5 percent.

The CHART OF THE DAY shows China's annualized GDP growth and U.S. personal consumption in constant dollars. Though there has been a decline in both U.S. spending and China's economic growth the past year, there is little or no correlation in most periods.

In the extreme, ``catastrophic'' case of a 10 percent drop in demand from the U.S. for consumer goods, China's GDP would be trimmed by about 0.3 percentage points, Koukoulas said, calling the amount ``small beer.''

China's economy is slowing, ``but this is in direct response to the series of policy tightenings through 2007 and early 2008,'' he said. ``Massive urban infrastructure development and gradual easing of interest rates or regulations should enable China to skate through the current episode with GDP bottoming at about 8 percent.''

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